Twist Australia v Process Plant Network
[2016] VCC 804
•16 June 2016
26 Oct
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-15-02714
| Twist Australia Pty Ltd (ACN 144 668 922) | Plaintiff |
| v | |
| Process Plant Network Pty Ltd (ACN 094 147 341) | Defendant |
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JUDGE: | Judicial Registrar Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11, 12 and 13 May 2016 | |
DATE OF JUDGMENT: | 16 June 2016 | |
CASE MAY BE CITED AS: | Twist Australia v Process Plant Network | |
MEDIUM NEUTRAL CITATION: | [2016] VCC 804 | |
REASONS FOR JUDGMENT
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Subject: Contract, Consumer Law
Catchwords: Contract – general principles – construction and interpretation – breach of contract - obligation to commission goods – obligation to supply goods in accordance with specifications – misleading or deceptive conduct
Legislation Cited: section 18 of Schedule 2 to the Australian Consumer Law (Victoria) - Penalty Interest Rates Act 1983 - Civil Procedure Act 2010
Cases Cited:Oakley & Anor v Insurance Manufacturers of Australia Pty Ltd [2008] VSC 68 - Khatchmanian v Mutual Community General Insurance Pty Ltd [2012] VCC 26 - Australian Securities and Investments Commission v Healey (2011) 278 ALR 618 - BCCI v Ali [2001] 1 AC 251 - National Bank of Sharjah v Dellborg [1997] EWCA Civ 2070 - Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 - Permanent Building Society (in liq) v Wheeler (1992) 10 WAR 109 - Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 - Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 - Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 - Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 - L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; Whitfords Beach Pty Ltd v Gadsdon (1992) 6 WAR 537 - Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370 - J Kitchen & Sons Pty Ltd v Stewart's Cash & Carry Stores (1942) 66 CLR 116 - Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541 - Henderson v Merrett Syndicates Ltd Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 - Grocon Constructions (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190 - Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 - Attorney-General of Botswana v Aussie Diamond Products Pty Ltd [No 2] [2012] WASC 73 - Attorney-General of Botswana v Aussie Diamond Products Pty Ltd [No 3] [2010] WASC 141 - Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 - ACCC v TPG Internet Pty Ltd [2013] HCA 54
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Connors | Benjamin Ian Zylberszpic |
| For the Defendant | Mr M Albert | Macpherson + Kelly |
JUDICIAL REGISTRAR:
Introduction
1 The plaintiff claims damages for breach of contract and misleading or deceptive conduct pursuant to section 18 of Schedule 2 to the Australian Consumer Law (Victoria) in respect of the purchase and installation of a food packaging production line.
2 The plaintiff contends that it held an exclusive Australian import licence for a patented snack-food vending machine from the United Kingdom. The snack foods were dispensed from the vending machines by way of a custom designed capsule. The production line was required to package snack foods into the custom designed capsules. The capacity of the plaintiff to sell the vending machines was limited by its ability to maintain a supply of snack foods in the custom capsule to its customers. According to the plaintiff, the sale of the packaged snack foods was to also provide a second and ongoing source of revenue for its business.
3 The plaintiff alleges that the failure of the defendant to deliver a production line pursuant to contract delayed the implementation of the plaintiff’s business model which resulted in the loss of sales of the vending machines, the loss of sales of packaged snack foods and ancillary losses.
4 The plaintiff sought a refund of the sum of $64,350.00, being money paid to the defendant in accordance with the contract for the production line, plus interest pursuant to the Penalty Interest Rates Act 1983. The refund was not forthcoming from the defendant. In addition, the plaintiff’s statement of claim included claims for economic loss and damage showing:
· variable interest on the plaintiff’s NAB loan facility to purchase the production line;
· loss of profit on sales of the vending machines between 1 November 2011 and 1 April 2012;
· loss of profit on the sale of consumables for the vending machines between 1 November 2011 and 1 April 2012;
· the cost of maintaining its exclusive import licence during the period of non-production attributable to the defendant;
· spoilt stock.
5 However, the plaintiff abandoned these claims for consequential loss and damage due to, according to Mr Chaim Lang’s (a director of the plaintiff) evidence at trial, a failure by the plaintiff’s solicitor to discover the plaintiff’s National Australia Bank Loan Facility, bank statements, invoices from suppliers and a failure to file and serve an expert’s report on economic loss and damage.
6 The defendant claimed a set off by way of defence of the amount of $4,950 plus interest pursuant to the Penalty Interest Rates Act 1983 plus additional interest of 2 per cent from the due date of the payment of the invoice for the new IOPAK Hot Foil Printer, and a sum of $7,500 of the final 10% instalment of the purchase price of the system plus interest pursuant to the Penalty Interest Rates Act 1983 plus additional interest of 2 per cent from the due date, being 7 days from commissioning or 30 days from delivery of the system (whichever is sooner).
7 The plaintiff conceded the set off in respect of the new IOPAK Hot Foil Printer from the refund of the sum of $64,350.00 payable to it by the defendant. The final 10% instalment of the purchase price of the system would then simply be an accounting exercise by which the plaintiff was obliged to pay the amount to the defendant pursuant to the contract. However, it was common ground between the parties that if the Court found in favour of the plaintiff, then this amount would then need to be refunded back to the plaintiff.
Factual Background
8 The parties entered into an agreement made on or about 9 June 2011. The defendant was to deliver and commission an automated system to fill, cap and label plastic containers (“the system”). The plaintiff claimed that the total price for the system was $76,010. The defendant relies on a Quotation for Complete Filing, Capping and Labelling System quoting the total sum of $65,000 + GST ($71,500 inclusive of GST). On 28 June 2011, at the request of the plaintiff, the agreement was varied to include a new IOPAK Hot Foil Printer for an additional sum of $4,000 + GST.
9 The system was to fill, cap and label plastic containers at a rate of between 20-40 units per minute. The defendant contended that this depended on the quality of the packaging and labelling material used by the plaintiff.
10 Pursuant to clause 9.7 of the agreement, where the plaintiff was not satisfied with the system, the system may be returned within 7 days less any reasonable expenses incurred by the defendant. There was a contest between the parties as to the correct contractual construction to be applied to this term.
11 The Delivery Time under the agreement was 6 weeks from the date of the purchase order and receipt of deposit plus 1 week for delivery and commissioning. The Delivery Time was dependent on the receipt of sample products and packaging in sufficient quantities from the plaintiff. Clause 8.1 of the defendant’s Terms and Conditions specified that the time or date for provision of the system stated by the defendant is intended as an estimate only and is not a contractual commitment. The defendant would use its best reasonable endeavours to meet any estimated dates for provision of the system.
12 On 15 June 2011, the plaintiff paid the defendant a deposit of $28,600. The plaintiff paid a further $35,750 on 18 August 2011, but failed to pay the remaining 10% in the sum of $7,500, 7 days from the date of commissioning of the system or 30 days from Delivery (whichever is sooner). The plaintiff also owed the defendant the sum of $4,950 under a separate invoice for the additional IOPAK Hot Foil Printer. It was common ground between the parties that the plaintiff had not paid the full purchase price of the system.
13 The plaintiff claims that the defendant failed to commission the system within a seven week period because of the following faults:
· the weighing and filling machine was inaccurate and inconsistent and either over filled or under filled the containers. The containers did not properly pass through the gate to the next part of the process.
· the capping machine regularly spilt products from the containers, and failed to properly cap the containers. The machine did not properly sort the capped and uncapped containers, sending capped containers into the reject bin and uncapped containers down the production line.
· the top labeller placed labels on the lids off-centre.
· the side labeller attached labels crookedly and creased the labels.
· the system only operated to a speed of 5-6 units per minute.
14 The plaintiff further alleged that the defendant did not provide the plaintiff with a system that would fill, cap and label at a rate between 20-40 units per minute.
15 In addition, the plaintiff claimed that the defendant breached clause 9.7 of the agreement which entitled the plaintiff to a refund if it was not satisfied with the system within 7 days, less any reasonable expense incurred by the defendant.
16 In the alternative, the plaintiff claimed that the defendant engaged in misleading or deceptive conduct pursuant to s 18 of Schedule 2 to the Australian Consumer Law in representing to the plaintiff that it was able to and would assemble the system to reliably and consistently fill, cap and label plastic containers with snack foods at a rate of 20-40 units per minute (“the fit for purpose representation”) and that it had assembled a functioning system which was ready to be installed (“the August representation”).
17 The defendant denied that it was liable for the defective system and alleged that it was due to:
· the plaintiff failing to use good quality packaging and labelling materials, and instead used inferior quality packaging and labelling which was inconsistent as it varied the shape, thickness, size and weight thereby affecting the system;
· the plaintiff failed to provide the defendant with adequate quantities of the materials and products intended for end use in the system;
· the materials and products supplied by the plaintiff to the defendant were not the same as those the plaintiff subsequently used in the system;
· capping irregularities and not system faults;
· poor quality labels used by the plaintiff.
18 The defendant admitted that it made statements to the plaintiff that it could assemble a system to fill, cap and label plastic containers at a rate of 20-40 units per minute but that it would be dependent on the defendant receiving adequate samples of products and materials, the plaintiff using products and materials of the same type as those supplied to the defendant and the plaintiff operating the machine properly and in accordance with the defendant’s instructions. The defendant contended that there was no reliance on the statement as the plaintiff purchased the system due to its own impending deadlines and the inability to obtain a system within the plaintiff’s budget from any alternate suppliers.
19 The plaintiff requested a refund of the $64,350 paid by it to the defendant in part payment of the system on 31 October 2011. On 2 November 2011, the defendant refused to refund the money to the plaintiff.
The issues
20 The relevant terms of the agreement between the parties are as follows:
· the product specifications were for a speed of 20 to 40 units per minute (product dependant)
· the project in brief was to unscramble containers using an unscrambling turn table. Fill containers with snack food using a multi headed weigher. Automatically place a cap on the container and push on the cap using an automatic capper. Label the top cap and wraparound on the side and accumulate on the accumulating turntable.
· under the heading “Notes – Important Please Read”, the pertinent clauses included:
o price includes delivery of equipment to [the plaintiff’s site] and onsite commissioning and training.
o system will be set up for 1 size plastic container, lid and label (top and sides) as per sample provided.
o accuracy and speed of fill on multi headed weigher to be determined after inspection and test run of [the plaintiff’s] products.
o caps for containers supplied have very little shamfer or “lead in” tolerance. As such failure rate on capping system may be high. [The defendant] cannot guarantee this until the machine is running and further tests have been carried out.
· terms of payment:
o 40% deposit with purchase order
o 50% after inspection and approval of machinery, but prior to delivery
o 10% 7 days from commissioning, or 30 days from delivery (whoever [sic] the sooner)
· “Delivery Time” 6 weeks from date of purchase order and receipt of [the plaintiff’s] deposit, ex-works PPN factory. 1 week for delivery and commissioning.
· clause 8.1 Any time or date for provision of Goods or Services stated by [the defendant] is intended as an estimate only and is not a contractual commitment. [The defendant] will use its best endeavours to meet any estimated dates for provision of the Goods or completion of Services.
· clause 9.3 The Customer is required to make its own assessment as to: (a) the suitability and fitness for purpose of the Goods to its needs; and (b) the condition of the Goods.
· clause 9.7 Where the Customer is not satisfied with the Goods, they may be returned within 7 days less any reasonable expenses incurred by PPN.
Election
21 In determining the no case submission made by the defendant on day one of the trial, I deferred my ruling on whether to put the defendant to its election to call no evidence until the completion of the defendant’s counsel’s oral submissions.
22 The question of whether a moving party should be put to its election is a question for the exercise of the Court’s discretion. The answer to that question depends on the just and convenient disposition of the litigation in the interests of justice.[1]
[1] Oakley & Anor v Insurance Manufacturers of Australia Pty Ltd [2008] VSC 68 at [14]; Khatchmanian v Mutual Community General Insurance Pty Ltd [2012] VCC 26 at [14].
23 In my view, this case did not fall within the exceptions to the general rule that the defendant ought to be put to its election.[2]
[2]Australian Securities and Investments Commission v Healey (2011) 278 ALR 618 per Middleton J.
Reasons
24 The plaintiff’s breach of contract case is founded on three alleged breaches:
· the defendant’s failure to commission the system within seven weeks of receiving the plaintiff’s deposit, or at all.
· the defendant’s failure to provide a system that would fill, cap and label at a rate between 20-40 units per minute.
· the defendant’s failure to provide the plaintiff with a refund.
Some Relevant Legal Principles on the Interpretation of Contracts
25 It is worth noting, albeit briefly, some relevant principles that govern the interpretation of written contracts.
26 Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 referred to five principles as follows:
· interpretation involves ascertaining the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract (the internal context, the contract as a whole).
· the background or “matrix of facts” involves absolutely anything which should have been reasonably available to the parties and which would have affected the way in which the language of the document would have been understood by a reasonable person (the external context, the factual and legal context).
· an exception to the principle set out in sub-paragraph above is that the previous negotiations of the parties and their declared subjective intent are only admissible in an action for rectification (which was not agitated by the parties in the present case).
· the meaning of the document is what the parties using those words against the relevant background would reasonably have understood those words to mean.
· words are to have their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties: BCCI v Ali [2001] 1 AC 251 per Lord Bingham of Cornhill.
27 In National Bank of Sharjah v DellborgDellborg [1997] EWCA Civ 2070 Saville LJ said that when interpreting an agreement the Court is trying to work out what the parties intended to agree. However, if the words used have an unambiguous and sensible meaning in the ordinary language, the Court will not allow the surrounding circumstances to alter the meaning.
28 If the meaning is not self-evidently nonsensical, the law should take that to be the intended agreement and should not allow the surrounding circumstances to override what is clear and obvious: Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 851; Permanent Building Society (in liq) v Wheeler (1992) 10 WAR 109 at 123.
29 Before taking into account extrinsic evidence it is important to consider precisely why it is said that it could assist in deciding the meaning of what was subsequently agreed and the relevance to the determination of the joint intention of the parties. Evidence of surrounding circumstances (i.e. factual matrix or contextual matrix) is admissible to assist in determining the plain or natural meaning of the words used: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 (Codelfa) at 352. Evidence of surrounding circumstances was admissible if the language was ambiguous in the sense of being susceptible of more than one meaning: Codelfa at 350.
30 Our courts exclude from the admissible background the previous negotiations of the parties and their declarations of subjective intent. The inquiry is objective - the question is what reasonable persons circumstanced as the actual persons were, would have had in mind: Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 at 754-755. In Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462, the High Court saw no difficulty in treating evidence of the surrounding circumstances known to both parties as admissible as a matter of general principle, that is without the need to establish ambiguity.
31 In short, the object to be achieved in interpreting any contract is to ascertain the common intention of the parties from the plain, natural or common meaning of the words in which they sought to express that intention, having regard to the context in which they chose those words.
32 Each particular provision of the contract must be construed in the context of the whole contract: Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235; Whitfords Beach Pty Ltd v Gadsdon (1992) 6 WAR 537 at 547.
33 A common sense approach is taken to the interpretation of commercial documents. Microscopic examination which would defeat the purpose of the contract is not appropriate in a commercial context: Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370 at 378. It is presumed that the parties did not intend the terms of their contract to operate in an unreasonable way: J Kitchen & Sons Pty Ltd v Stewart's Cash & Carry Stores (1942) 66 CLR 116 at 124-125.
34 Where there are two or more possible constructions, the Court will reject the more unreasonable construction/s: Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541 at 551; Henderson v Merrett Syndicates Ltd Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 203.
35 The Court of Appeal in Grocon Constructions (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190 (at [81]) referred to the most recent High Court statement of the principles for interpreting commercial contracts in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, [35]. The High Court reaffirmed that the objective approach is to be adopted. That is, “what a reasonable business person would have understood the terms to mean … it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract”.
Whether the defendant failed to commission the system
36 The plaintiff submitted that defendant had failed to commission the system within the seven week time period, or at all between 21 August 2011 and 31 October 2011.
37 The Macquarie Dictionary defines “commission” as the condition of anything in “active service or use”. The Australian Oxford Dictionary provides that it is to “bring (a machine, equipment, etc) into operation”. This definition was cited in Attorney-General of Botswana v Aussie Diamond Products Pty Ltd [No 2] [2012] WASC 73 at [59] (“Aussie Diamond”).
38 The Oxford Dictionary states that it is to “bring (something newly produced) into working condition: we had a few hiccups getting the heating equipment commissioned…”
39 However, for the reasons set out below, I find that the term which required the defendant to commission the system was not an essential term of the contract.
40 On 6 June 2011, Mrs Sara Lang, a director of the plaintiff, requested confirmation by email from Mr Giles Dommisse, a director of the defendant, of the following relevant matters in relation to the system:
· installed and functioning at the plaintiff’s premises within 6 weeks; and
· confirmation that the system could produce min 20-40 units per minute, with the plaintiff’s specifications.
41 Mr Dommisse responded that the defendant would need 6 weeks in its workshop, and delivery and commissioning at the plaintiff’s site would take an extra week (i.e., 7 weeks in total). In relation to the speed per minute, based on Mrs Lang’s description, Mr Dommisse said that it should be fine, although the defendant should inspect the actual product “to be sure to be sure”.
42 There was a contest between the parties as to whether the system had ever been commissioned by the defendant between 21 August and 31 October 2011. The defendant contended that at installation at the plaintiff’s premises on or around 21 August 2011, it had commissioned the system following test runs conducted by its technicians. The plaintiff claimed that the system had never been commissioned, as from delivery to the date of the demand for a refund on 31 October 2011, the system never operated in accordance with the plaintiff’s specifications.
43 Martin CJ in Aussie Diamond at [81] observed that there is a fundamental difference between a contractual obligation to bring an item of equipment into operation and a contractual obligation to supply an item of equipment which is suitable for a particular purpose. Therefore, the plaintiff must be careful not to conflate the obligation to commission with the obligation to supply a system which was suitable for the purposes specified under the contract: Aussie Diamond at [86].
44 The service report produced by the defendant on the third day of trial indicated that there was a technician attending the plaintiff’s premises for service/repair every couple of days from the date of installation in mid-August 2011. The parties agreed that the defendant’s technicians attended the plaintiff’s site around 15 times from installation to the end of October 2011.
45 Mrs Lang emailed Mr Dommisse on 25 August 2011, stating that she had sent him some SMS’ a few times, with no reply. She informed him that the label supplier and one of the defendant’s technicians, “Phil” (Phil Defers), had attended the plaintiff’s premises and both “were stumped” about the problems in relation to the labels. The label supplier said that he would attempt to provide different labels again (a fifth iteration of the labels) and would have them ready within 4 days. She stated that the defendant’s technician had tried tirelessly to get the label machine going to no avail. It was intermittent; sometimes the labels would go on straight and then they would skew. It was common ground between the parties that there was no consistency in performance of the labelling.
46 On 4 October 2011, Mrs Lang emailed Mr Dommisse stating that she understood from the defendant’s technician, “Phil”, that he would be attending the plaintiff’s premises that day to inspect the system. Mrs Lang advised that she was very concerned at that stage that the system did not meet the plaintiff’s requirements as originally ordered. She stated that as at 3 October 2011, the following issues remained outstanding:
· the labels did not adhere consistently and were not placed on the top or the side consistently.
· the sensor for the top label was faulty and needed replacing.
· the plaintiff had ordered new labels based on the defendant’s advice that the design would be sufficient and correct for the label machine as they included an additional line that was required for the sensor to detect the labels. However, Mrs Lang stated that there was now an issue with the extra line on the labels and the machine required further adjustment.
· the inkjet printer did not print on the cups and the ink did not adhere and rubbed off.
· the cupping machine was only 20% successful with lids skipping off the bottles. The defendant had claimed a 98% success rate when it tested the system with a 5 minute test.
47 On 24 October 2011, Mrs Lang was able to do a “test run” of the system at the plaintiff’s premises. 6 people ran the production line on the machine for a total of 4 hours, completing 1,200 units. This was far below the 20-40 units per minute pursuant to the contract. The caps had to be placed on the cups by hand. Mrs Lang gave evidence that the highest rate of production that she was able to achieve with the system was about 5 products per minute. She noted the following matters:
· the capping machine was not releasing the “successful” units to the conveyor for processing. Instead, the majority of the cups, whether capped or not, where going to the “reject” pool.
· the capper did not pick up all of the lids and it had nothing to do with the shape of the lid.
· the inkjet printer did not print.
· the label machine needed adjustment. The angle of the belt needed adjusting to a 90 degree angle. The belt had previously been on an obtuse angle and that had been the cause of the skewing of the labels.
· the upper labelling was inconsistent which required an adjustment of the senor.
48 On 25 October 2011, another of the defendant’s technicians, Steve Roksa, attended the plaintiff’s site over a period of 5 hours. Mrs Lang said that the results were disappointing. In the morning, he remedied the level of the belt to 90 degrees which seemed to help at first. Mr Roksa then made other adjustments after lunch which resulted in inconsistencies. The top labeller was similarly inconsistent and Mr Roksa said that he did not know why this was the case and he needed to seek more advice. Mr Roksa did not look at the printing device (the ink was not drying) or the capping machine (which needed adjustment for easier lead in tolerance of the bottles). Mr Roksa did not know how to fix the problems and wanted to speak with Mr Dommisse.
49 Mr Dommisse responded by email advising Mrs Lang that he had spoken with Mr Roksa and noted that it was frustrating that the labeller had been working in the morning and then changed in the afternoon. Mr Roksa could not determine why this had happened, which was why he had stated that he did not know how long it would take to fix the system and the defendant was still trying to figure out why the labeller was erratic.
50 The parties agreed that although there were ongoing issues in relation to the capping and the printing device, the technicians were focussing mainly on the labelling issue.
The containers and caps
51 By 9 June 2011, Mr Dommisse confirmed receipt of samples of the containers and caps to be used by the plaintiff. It was common ground between the parties that 500 cups/lids were supplied to conduct the preliminary testing at the defendant’s plant and that these were the same containers and caps as per the sample provided throughout the process. There was no suggestion by the defendant in the email of 9 June 2011 that the sample of 500 containers and caps was inadequate in any way and the documentary evidence does not disclose that the defendant requested more than 500 samples for its test runs. The defendant only requested the supply of sample food products and labels as soon as possible. This is to be contrasted with Mr Dommisse’s oral evidence where he claimed that he advised Mrs Lang at the factory approval meeting that the defendant wanted to do a longer run with more products and that the plaintiff required better quality control or a change to the containers.
52 By email dated 18 June 2011, Mrs Lang informed Mr Dommisse that she would drop off cups early in the week, with stock and labels to follow.
53 By email dated 1 August 2011, Mr Dommisse informed Mrs Lang that the defendant hoped to be finished with the system sometime that week, if it did not strike any problems in its test runs. Once that process was complete then he would invite Mrs Lang to attend the factory approval demonstration and sign off that the system was ready and working as intended.
The labels
54 The plaintiff contended that the label machine, or its adjustments on the sensors were not correct, which resulted in the inconsistent application of the labels.
55 Mrs Lang sought guidance from Mr Dommisse in relation to the defendant’s specifications for the labels. By email dated 12 June 2011, Mrs Lang requested the defendant’s specifications for the labels for both the sample and actual input, the core diameter and the label roll diameter. On 13 June 2011, Mr Dommisse only replied to the second part of Mrs Lang’s queries in relation to the core diameter and the label diameter.
56 Around 2 August 2011, Mr Dommisse recommended to Mrs Lang that the top labels with the wings should be in a solid colour and not clear. This was required to complete the testing of the labeller. Mr Dommisse subsequently explained to Mrs Lang that the clear labels were “no good” unless a $2,000 sensor was fitted to the system to pick up the labels. However, he said that the defendant would try to “make do” with the clear labels by placing a texter marker on them until the plaintiff was able to supply the printed labels. There appeared to be a misunderstanding between the parties about the labels whereby Mrs Lang thought that Mr Dommisse had indicated that he could “make do” with the clear labels, otherwise she claimed that she would have arranged for the extra samples prior to 2 August 2011. Mrs Lang advised that the printed labels would be available in the following 2-3 days.
57 Mr Dommisse admitted that Mrs Lang required assistance from the defendant, as she was a director of a family run start up business and thus was in a different category to the large food production corporate clients that the defendant usually dealt with. A further example of Mr Dommisse’s involvement in the design of the plaintiff’s labels was apparent in the new label design that he drafted and sent to Mrs Lang by email on 17 August 2011. This resulted in a further re-design of the labels around mid-August 2011.
58 Mrs Lang gave evidence that there were 8 different iterations of labels produced by the plaintiff at the direction of the defendant. However, none of the iterations were compatible with the system. She said that even at the factory approval meeting on 16 August 2011 at the defendant’s plant, the plain white labelling supplied to the defendant needed to be adjusted and smoothed out. Mr Dommisse had requested additional samples of labels, which were provided by the plaintiff later on that day. At no time did the labeller work consistently.
59 On 16 August 2011, a representative of the defendant sent an email to Mrs Lang which stated that the system had been signed off and was ready to go. Mrs Lang replied that, although she had not seen the smooth continuation of a full line function at the factory approval meeting due to the labelling needing adjustment, she assumed that everything would be fine for the installation later on that week and that the system would be operating smoothly after installation at the plaintiff’s premises. In oral evidence, Mrs Lang stated that Mr Dommise told her that “we’ll get that fixed”.
60 On 29 August 2011, Mr Dommisse wrote to Mrs Lang noting that one of the defendant’s technicians, “Phil”, was again at the plaintiff’s site testing changes to the labelling machine. However, the adjustments did not make enough of a difference to the labelling. Mr Dommisse said that the defendant would try a more sophisticated labeller at its premises that had a 43 roller wrap-around device and a vacuum wrap around belt to determine whether the plaintiff’s labels and bottles would work on that machine.
61 Mr Dommisse made three suggestions to Mrs Lang in relation to the plaintiff’s labels in light of the plaintiff’s original commission overseas with a Chinese Labeller, which Mrs Lang claimed did not experience problems in wrapping around the plaintiff’s bottles. Mr Dommisse noted that the labelling was at least 10mm below the ridge, which made labelling easier. The labels were rectangular in shape and not looped. In his view, the rectangular shape was easier to run on the production line than the then looped labels. He recommended that the plaintiff change its label to a rectangular shape and suggested that this would result in less problems. Finally, he noted the top label. The position of the top label varied substantially between the top of each of the bottles, which indicated to Mr Dommisse that the Chinese Labeller was not very accurate.
62 However, Mrs Lang said that the defendant’s technician had tested the labeller with the rectangular labels at the plaintiff’s premises and they skewed even more than the looped versions.
63 By email dated 12 October 2011, Mrs Lang informed Mr Dommisse that “Phil”, one of the defendant’s technicians, had attended the plaintiff’s site the previous week to get the wrap around label machine to work. It was still not functioning after some time and the belt had worn away from not being used correctly. Mrs Lang was told that a replacement belt would be available on 10 October 2011. On 12 October 2011, another of the defendant’s technicians, Steve Roksa, attended the plaintiff’s premises however he did not bring the replacement wrap around belt with him. Mr Roksa was of the view that it was not the belt but that the timing was not correct and the motor was not driving the speed correctly on the system and it was “a problem with second hand equipment”. It was suggested to Mrs Lang that the defendant take the system back to their premises to fix it. Mrs Lang said that she had not been able to use the system since its installation and it already required attention by the defendant.
64 Mr Dommisse responded on 13 October 2011 noting that one of the defendant’s technician’s, Steve Roksa, had attended the plaintiff’s site on 11 October 2011 and that it appeared that the labelling machine was labelling the bottles inconsistently. In order to fix the problem quickly, the defendant wanted to pick up the system from the plaintiff’s premises and bring it back to its workshop for assessment, diagnosis and repair. He required a full roll of labels for the top and side labeller along with 100-500 bottles. Once in the defendant’s workshop, the defendant had all the tools, components and necessary facilities to solve the problem and return the machine in good working order. The repair would be free of charge. The defendant could not solve the problem onsite because it did not have the necessary tools and machinery at the plaintiff’s site.
65 Mrs Lang replied requesting a replacement machine to be made available while the system was at the defendant’s site for diagnosis and repair. Otherwise she required the defendant to fix the system on the plaintiff’s site to its requirements as the business could not afford further delay on the basis of diagnosis and repair. To date, the plaintiff did not have a functional system for its requirements and the business was incurring losses on a daily basis.
66 Similarly on 25 October 2011, Mrs Lang requested a “loaner” machine if the system was required to be taken back to the defendant’s premises for diagnosis and repair.
67 As set out above, Mr Dommisse noted that Mr Roksa could not determine why the labeller was inconsistent. He stated that the defendant needed to have the labeller at the defendant’s workshop in order to fix it. The defendant’s view was that it could not fix it on the plaintiff’s site and Mr Dommisse was not prepared to send any more technicians out to try to fix the labeller onsite. The defendant did not have a spare labeller to loan whilst the current one was being repaired and the plaintiff would need to allow 2 weeks for pick up, diagnosis, repair, testing and return. In relation to the capper and the printer, the defendant was happy to send a technician on site to check and remedy any faults that were machine related (and not packaging material related).
68 The correspondence between the parties clearly indicates that by the end of October 2011, the parties were extremely frustrated with technicians constantly going back and forth for 5 hours at a time once a week with no results.
69 The contemporaneous documents indicate that, as at 26 October 2011, Mr Dommisse thought that the labeller at least could be fixed after 2 weeks at the defendant’s workshop and the capper and printer faults could be dealt with onsite. Mrs Lang was of the view that her business could not afford another 2 weeks to have the machine fixed and returned to the plaintiff’s premises.
70 The contract states that the delivery date is 6 weeks from date of purchase order and receipt of [the plaintiff’s] deposit, ex-works PPN factory and a further 1 week for delivery and commissioning.
71 The contract allowed for more than 1 day to commission the system. It allows a period of 1 week for commissioning to occur. However, clause 8.1 of the defendant’s terms and conditions attached to the contract stated that the time or date for provision of the system stated by the defendant is intended as an estimate only and is not a contractual commitment. The defendant would use its best reasonable endeavours to meet any estimated dates for provision of the system. Further, the contract provided that the delivery time could be affected by:
· the receipt of sample products and packaging in sufficient quantities from the plaintiff.
· changing project specifications after receipt of deposit would be considered a variation to the order and may be subject to additional charges were necessary and applicable.
· any delay in supplying crucial information to complete this project and/or sample products and packaging material.
72 The contemporaneous documents reveal that:
· Mr Dommissee was of the view that the system would be delivered and commissioned at the plaintiff’s site in 7 weeks.
· Mr Dommisse did not indicate to the plaintiff that the 500 sample cups provided was insufficient.
· there was a misunderstanding between Mr Dommisse and Mrs Lang as to whether the labels with the final artwork would be required prior to the factory approval day and Mrs Lang understood that the defendant could make do with the blank white labels with appropriate markings.
· Mr Dommisse instructed Mrs Lang on the design of the 8 different iterations of labels in an attempt to make them compatible with the label machine supplied.
73 Counsel for the plaintiff contended that it was not until 24 October 2011 that the plaintiff was able to run its first test of the system on its own.
74 By email dated 4 October 2011, Mrs Lang informed Mr Dommisse that the plaintiff had been unable to do production since its installation on 21 August 2011 and that the system would not perform successfully.
75 The request for a refund was then made on 31 October 2011. The parties had persevered for a period of 2 months to attempt to adjust the system to perform in the manner specified under the contract.
76 As set out below, I accept the plaintiff’s claim that the system as a whole did not perform in accordance with the plaintiff’s specifications from the factory approval stage onwards. This is separate and distinct from any obligation to commission the system. I find that the defendant did assemble and bring the system into operation on 21 August 2011 and that during the short testing period conducted by the defendant’s technicians on the plaintiff’s site, there was performance of the system. Mrs Lang’s evidence was that ultimately on 24 October 2011 she was able to conduct her own test run of the system, although it did not perform in the manner required (which is a different matter). Even if I am wrong in my conclusion that the system was commissioned on 21 August 2011, in my view, the defendant’s position that pursuant to clause 8.1 of the terms and conditions, the delivery time of 7 weeks was not a contractual commitment is correct. Further, I find that the defendant did use its best reasonable endeavours to meet the estimated dates for provision of the system.
77 I find that the essential term imposed by the agreement was the obligation to supply a system that complied with the terms of the agreement, and on the plaintiff’s part, to pay the purchase price. As was approved in the WA Court of Appeal case of Aussie Diamond at [62], the proper construction of the contract is that the commissioning (and training terms) were important but not essential features and were collateral to the principal object of the transaction. This is demonstrated by the fact that had the defendant not provided training or commissioning at all, that work could have been done by another contractor and the cost of that work could be recovered from the defendant as damages. Therefore the commissioning term is merely a warranty.
78 The question of whether there was a contractual obligation to commission the system which the defendant supplied is separate and distinct from the contractual obligation to supply a system that complied with the specifications for which it was required, as explored below: Aussie Diamond at [80].
Whether the defendant failed to provide a system with a speed of 20-40 units per minute
79 There is a difference between a warranty to commission, i.e., assemble and bring an item of equipment into operation, and a contractual obligation to supply an item of equipment which performs in the manner required. If in the commissioning of the system it is shown that the machine breached the specifications under the contract then the breach is not because of a failure to commission but rather a breach of the obligation to provide a system that performed in accordance with the terms of the agreement: Attorney-General of Botswana v Aussie Diamond Products Pty Ltd [No 3] [2010] WASC 141 at 281 per Murphy J (upheld on appeal).
80 The plaintiff’s second argument was on the basis of a breach of the contractual obligation to supply a system that would fill, cap and label at a rate between 20-40 units per minute.
81 The defendant urged a construction on the phrase “(product dependant)” in the contract as a contingency on the speed of the system to mean the plaintiff’s inputs in their entirety, which could result in a speed variation under 20 units per minute.
82 The plaintiff contended that the correct interpretation of the term “20-40 per min (product dependant)” was a variation of the speed within that range depending on whether the containers were being filled with “nuts, dried fruit or chocolate”.
83 I consider that the plaintiff has the better part of this argument when regard is had to the relevant context, and to the uncommerciality of the defendant’s construction: see Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd at 551.
84 In my view the ordinary and natural meaning of the term “20-40 per min (product dependant)” favours the plaintiff’s construction. The defendant’s construction is commercially illogical and contrary to the bargain struck between the two parties as the contemporaneous emails indicate that when confirmation was sought from the plaintiff that the system could produce 20-40 units per minute, Mr Dommisse based his response on the description of the “products” as the size and shape of “nuts & rice pieces”.
85 Further, if there was some ambiguity as to the meaning of the term “20-40 per min (product dependant)”, the contemporaneous emails indicate that the parties referred to “product” in the context of “food product” and identified the containers, caps and labels as separate and distinct from the word “product”.
86 The defendant sought to argue that the notes attached to the contract stated that the accuracy and speed of the weigher and capping system would be determined after the system was running and further tests were carried out. However, the tests had been carried out prior to the factory approval meeting and the bottles and caps used by the plaintiff were the same as those samples provided for the set up. Mr Dommisse gave evidence that the 500 samples of bottles and caps provided to him by Mrs Lang were inconsistent because “the tolerance between the lid and the tub was too tight on some and okay on others. There were also differences in diameter and height of the tubs as well.”
87 Mr Dommisse admitted that the defendant could have come up with a new concept so that the system could be able to the handle inconsistencies in the containers and labels. However, the bottles and caps used by the plaintiff were the same throughout the relevant period. The defendant therefore should have made the necessary adjustments to the system to take into account the variations in the bottles and caps prior to installation. Under cross examination, Mr Dommisse conceded that at no time did he say to Mrs Lang that the products that the plaintiff was sourcing were either inconsistent or too tight, such that the defendant could no longer meet the plaintiff’s specifications of 20 to 40 units a minute. Neither did he advise the plaintiff that after the defendant had conducted its tests that it had grave concerns about the bottles, caps and labels. Further, the defendant had inspected the samples and the system was supposed to run in accordance with the plaintiff’s specifications which includes its nominated inputs.
88 Mr Roksa gave oral evidence at trial, however, I give his evidence little weight as he only attended the plaintiff’s premises three out of the fifteen times and admitted that his memory was “a little bit hazy. It was quite a while ago”. When Counsel for the defendant took Mr Roksa to contemporaneous emails, he could not give evidence beyond what was written in the documents. For example, the email of 13 October 2011 reported on his visit to the plaintiff’s site that week and Mr Roksa stated that he did not remember why he was not able to do any further work on site and that “we might have felt that there’s something else we could have looked at but I don’t remember”. Mr Roksa’s conclusion in examination in chief that “the jar itself was probably a problem and I believe that it was probably not quite consistent in its shape” is at odds with the contemporaneous emails of 25 and 26 October 2011. In any event, I accept Mr Dommisse’s evidence that the defendant could have (and should have) adjusted the system to take into account the variations in the bottles.
89 Counsel for the defendant sought to rely on the service reports (produced on the last day of trial and tendered through Mr Dommisse) which set out various service dates ending in 3 October 2011 and stated:
Top labeller sensor faulty
Printer ink can wipe off
Capper rectify programming alarms
Capping problems
Caps and bottles (Quality control)
Wrap/around belt damaged
However, the author of the report was not called as he was interstate at the time of the trial. Counsel for the defendant contended that this was evidence of a conclusion that the problem was the caps and bottles. I give the document little weight as the author was not called and no direct evidence was given in relation to the entries. The contention was also inconsistent with the contemporaneous emails in which the defendant was examining the machine and where Mr Roksa said “it was a problem with second hand equipment”. Further, the defendant and Mr Roksa were focussing on “fixing” the labeller around 26 October 2011, however, there were still ongoing issues with the other components, being the capper and printer, which affected the system’s ability to perform in accordance with the specifications for which it was required.
90 The plaintiff’s right to reject the system arises if, as a matter of objective fact, the system supplied was not in conformity with the contract. In my view, for the reasons set out above, the defendant breached its obligation to provide a system that would fill, cap and label at a rate between 20-40 units per minute. This breach goes to the root of the contract so as to deprive the plaintiff of a substantial part of the benefit which it was entitled to under the agreement. Therefore, I find that what was delivered to the plaintiff by the defendant effectively had no value. As such, the loss suffered by the plaintiff is the value of the system, being the sum of $64,350, paid by the plaintiff under the contract in reliance of the defendant’s contractual promise (plus the remaining 10% of the purchase price to be paid by the plaintiff under the contract, with such expenditure to be subsequently refunded by the defendant): McRae v Commonwealth (1951) 84 CLR 377 at 419.
Whether the plaintiff is entitled to a refund
91 As set out above, the plaintiff contended that the system was never “commissioned” by the defendant within the seven week period, or at all. Therefore, as at 31 October 2011, the refund clause was still alive and the plaintiff was entitled to seek a refund on the basis that it was not satisfied with the system. The plaintiff urges a beneficial reading of clause 9.7 of the contract, as it is for the benefit of the consumer.
92 By email dated 31 October 2011, Mrs Lang wrote to Mr Dommisse stating that the plaintiff had decided that the defendant collect all of its equipment by the end of that week in exchange for a full refund. In her view, from the outset, they had been unable to do any production process successfully with the system provided and it did not perform to the plaintiff’s specifications.
93 By email dated 2 November 2011, Mr Dommisse did not accept Mrs Lang’s proposal for refund and instead confirmed that the defendant would be happy to repair the machine at its premises and if there were other issues with the other equipment supplied, this could be fixed onsite. The defendant wanted to ensure that the system was in good working order and would not walk away from the problem until the machine was working correctly.
94 In light of my finding that the defendant has breached the term of the contract that the system would fill, cap and label at a rate between 20-40 units per minute, I find that the plaintiff has suffered loss by way of contractual damages in the sum of the money paid to the defendant, being $64,350 as a consequence of the said breach, and the plaintiff does not need to seek relief under clause 9.7 of the contract. I further rely on my previous finding that the system was commissioned on 21 August 2011, although it did not perform in the manner required by the contract.
Misleading and deceptive conduct
95 The Australian Consumer Law (ACL) allows a party to rescind a contract in circumstances where, as is alleged in the present case, there was a misrepresentation made by one party during negotiations which played a part in persuading the other party to enter into the contract and it turns out that what was said was wrong: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198 (“Parkdale v Puxu”). Section 18 to Schedule 2 of the ACL states that “a person must not, in trade or commerce, engage in conduct that is misleading or deceptive, or likely to mislead or deceive.”
The fit for purpose representation
96 The plaintiff claimed that prior to entering into the contract, the defendant represented to the plaintiff that it was able to and would assemble the system to reliably and consistently fill, cap and label plastic containers with snack products at a rate of 20-40 units per minute (“the fit for purpose representation”). The plaintiff contended that in making this fit for purpose representation during the negotiations, the defendant influenced the plaintiff to enter into the contract and it turned out that what was said was wrong and, therefore, constituted a misrepresentation.
97 As this area of law is not in the realm of a breach of contractual promise, the alleged representation need not pass the “promise test”. The Court must concern itself with whether what was said by the defendant was an inducing misrepresentation.
98 Whether particular conduct is misleading or deceptive is a question of fact that must be determined in the context of the evidence as to the alleged conduct and the surrounding circumstances of the case: Parkdale v Puxu per Gibbs CJ.
99 In my view, based on the emails immediately pre-dating the agreement, Mr Dommisse indicated that the speed “should be fine”, although the defendant should inspect the actual product “to be sure, to be sure”. As such, the fit for purpose misleading and deceptive claim must fail and the contract cannot be made voidable on this ground. The alleged fit for purpose representation was not made in absolute and unequivocal terms by the defendant such that it could lead the plaintiff into error. There was a sufficient qualification made by the defendant such that the dominant message of the statement made by the defendant was not misleading: ACCC v TPG Internet Pty Ltd [2013] HCA 54.
The August representation
100 The plaintiff’s second misleading or deceptive conduct claim concerned conduct shortly prior to delivery of the system on 21 August 2011 (“the August representation”). The plaintiff contended that the defendant represented that it had assembled a functioning system which was ready to be installed to the plaintiff’s premises. The plaintiff asserted that it was induced to make the delivery payment of $35,750 by reason of the August representation.
101 Even if I accepted that the defendant made the August representation as alleged by the plaintiff, the evidence indicates that there could not have been any reliance on the alleged representation on the part of the plaintiff as the plaintiff paid the delivery payment on 18 August 2011, prior to 21 August 2011.
102 If I am wrong about the chronology, in my view, the surrounding facts and circumstances indicate that at the factory approval meeting on 16 August 2011, Mrs Lang did not see the smooth continuation of a full line function and that Mr Dommise told her that “we’ll get that fixed”. Further, in and around mid-August 2011 there were ongoing design issues involving the labels and the labeller’s inconsistent performance. Therefore, the evidence before the Court indicates that there was a promise to fix the machine so that it would function, not that the defendant had assembled a functioning system which would be installed at the plaintiff’s premises.
103 This ground was not agitated on the basis of an erroneous assumption on the part of Mrs Lang in that, although the defendant did not demonstrate at the factory approval meeting performance of the system in accordance with the specified purpose, she assumed that everything would be fine for the installation later on that week because Mr Dommise told her that “we’ll get that fixed” after installation at the plaintiff’s premises. The plaintiff did not plead or prove such a representation.
Set off
The IOPAK Hot Foil Printer
104 By invoice number 00002560 dated 8 September 2011, the plaintiff purchased a new IOPAK Hot Foil Printer in the sum of $4,950 (incl of GST). By email correspondence dated 8 and 9 September 2011, the parties agreed that the payment terms were 90 days from delivery. It was common ground between the parties that the plaintiff had not paid the defendant for the printer and that this sum ought to be set off against any award in favour of the plaintiff.
Conclusion
105 For the abovementioned reasons, I find that the:
· plaintiff is entitled to damages in the sum of $64,350 plus interest pursuant to statute; and
· defendant is entitled to its set off of:
o $4,950 plus interest at a rate 2% higher than statutory interest, 90 days from delivery of the IOPAK printer (which was conceded by the plaintiff) together with the sum of -
o $7,500 plus interest at a rate 2% higher than statutory interest from 28 August 2011 (being 7 days from commissioning of the system) for the balance of the purchase price of the system, with such amounted to be refunded back to the plaintiff.
106 I will hear the parties as to the appropriate form of orders and any proposed applications on the question of costs.
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I certify that these 31 pages are a true copy of the reasons for decision of Judicial Registrar Burchell delivered on 16 June 2016.
Dated: 16 June 2016
Simon Bobko
Associate to Judicial Registrar Burchell
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